02 Mar 09
Prepayment of rent for casino site capital - Star City

The Full Federal Court (Goldberg, Dowsett and Jessup JJ) has upheld the Commissioner's appeal from the decision of Gordon J, who had allowed the taxpayer's appeal against a decision of the Commissioner to disallow deductions for rental prepaid by the taxpayer in conjunction with the grant, by the NSW Casino Control Authority (CCA), of a casino licence and the grant of a 99 year lease of land upon which the casino was to be built. The rental prepaid ($120 million) was for the first 12 years of the term of the lease and represented the present value of an annual rental over that period of $15 million per annum. After the first 12 years, the rental reduced to $250,000 per annum. The Full Federal Court held that the prepayment was a payment of a capital nature not deductible under s 51(1) of ITAA 1936 or s 8-1 of ITAA 1997 as the character of the advantage sought by the payment was the securing of the casino licence and the exclusive right to operate a casino in New South Wales rather than the quiet enjoyment of the casino site for 12 years: FCT v Star City Pty Limited [2009] FCAFC 19 (Full Federal Court; Goldberg, Dowsett and Jessup JJ; 27 February 2009).